30 Questions
Which type of ownership tends to move up and down in straightforward ways with the value of the stocks and/or bonds?
Traditional portfolios
What is the key difference between options and futures or forward contracts?
Options are not compelled to buy or sell, while futures and forward contracts carry the obligation to go through with the agreed-upon transaction.
How can futures contracts be exited before maturity?
By buying/selling a contract with opposite terms
What is the main difference between forward contracts and futures contracts?
Forward contracts are customized, while futures contracts are standardized.
What do futures and forward contracts specify?
Purchase or sale of some underlying security at some future date
What is the purpose of leverage in the derivatives market?
To increase potential returns
Which of the following is a benefit of using standardized contracts that trade on an exchange?
All of the above
Which of the following assets can be traded using standardized contracts on an exchange?
Commodities
Which of the following best describes the role of hedgers in the futures market?
Seek protection from price movement
Which of the following best describes the role of speculators in the futures market?
Seek to profit from price movement
What is the purpose of futures contracts in the futures market?
To provide a means of hedging against price movement
What is the role of margin in futures trading?
To require participants to post and maintain collateral
Which of the following best describes the VIX Index?
An index that represents the market's expectations for the relative strength of near-term price changes of the S&P 500 index
What does the term 'basis' refer to in futures trading?
The difference between the futures price and the spot price
When the futures curve is upward sloping, it is referred to as:
Contango
What is the purpose of hedging with futures?
To protect against potential losses in an investment
What is the spot-futures parity theorem?
The two strategies of purchasing an asset now and taking a long position in futures must have the same market determined costs over time
What is the formula for calculating basis risk?
Variability in the basis means that gains and losses on the contract and the asset may not perfectly offset if liquidated before maturity
Which of the following is true about futures contracts?
Margin deposits are used to ensure both parties can meet their financial obligations
What is the purpose of marking to market in futures trading?
To calculate the total profit or loss on a futures contract
How do investors make or lose money with daily marking to market?
By profiting from the daily changes in the futures price
What is the profit per contract if the futures price for silver increases from $20.10 to $20.20 per ounce?
$500
What is the profit to the short position at maturity if the spot price for a commodity is $20.21 and the initial futures price is $20.10?
$-550
In which markets are futures contracts commonly used?
All of the above
Which of the following is true about futures contracts?
Futures contracts are purchased on margin
What is the main difference between futures contracts and forward contracts?
Futures contracts are standardized and traded on exchanges, while forward contracts are customized and traded over-the-counter
What is the purpose of marking to market in futures trading?
To adjust the futures contract price based on market conditions
What does it mean to say that futures contracts are purchased on margin?
Investors can buy futures contracts with a small initial investment
What is the difference between contango and backwardation in futures markets?
Contango refers to a market where futures prices are higher than spot prices, while backwardation refers to a market where futures prices are lower than spot prices
Who typically invests in futures contracts?
Banks and financial institutions
Test your knowledge on futures contracts and margin requirements with this quiz. Learn about concepts such as initial margin, marking to market, and daily settlement. Challenge yourself to understand the deposit requirements for both long and short positions in futures trading.
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